2016 (9) TMI 1557 - AT - Income Tax

Tribunal instructs AO to re-examine contract receipts, sundry creditors, disallowances

Shri Deepak Hanmant Pawar and Shri Kuldeep Deepak Pawar Versus Addl. CIT, Satara Range, Satara

Shri Deepak Hanmant Pawar and Shri Kuldeep Deepak Pawar Versus Addl. CIT, Satara Range, Satara - TMI Issues Involved:1. Admission of additional evidence under Rule 46A.2. Addition of undisclosed contract receipts.3. Estimation of net profit on unaccounted contract receipts.4. Disallowance under Section 40(a)(ia) and Section 40A(3) of the Income Tax Act.5. Addition of sundry creditors and other liabilities.6. Jurisdictional validity of the assessment order.7. Treatment of income from land business.Issue-wise Detailed Analysis:1. Admission of Additional Evidence under Rule 46A:The assessee argued that the additional evidence submitted during the assessment should be admitted as it reveals the correct assessable income. The CIT(A) rejected this request after obtaining the AO's comments, who opposed the admission on the grounds that the assessee failed to substantiate deserving circumstances for the same. The Tribunal upheld the CIT(A)'s decision, emphasizing that the accounts were audited and signed by the assessee, and re-auditing or recasting the accounts was not justified.2. Addition of Undisclosed Contract Receipts:The AO added Rs. 2,93,11,999/- to the total income as concealed turnover. The CIT(A) upheld this addition. The Tribunal found that the assessee did not adequately reconcile the contract receipts and sundry creditors. The Tribunal restored the issue to the AO to provide the assessee an opportunity to substantiate his case and reconcile the discrepancies.3. Estimation of Net Profit on Unaccounted Contract Receipts:The CIT(A) estimated the net profit at 12.5% on the undisclosed turnover, resulting in an addition of Rs. 36,64,000/-. The Tribunal noted that the assessee showed net profits of 6.74% and 10.37% in the original and revised profit and loss accounts, respectively. The Tribunal directed the AO to re-examine the estimation of net profit, considering a reasonable percentage, possibly around 8% as per Section 44AD.4. Disallowance under Section 40(a)(ia) and Section 40A(3):The AO disallowed Rs. 2,12,09,217/- under Section 40(a)(ia) and Rs. 1,00,000/- under Section 40A(3). The CIT(A) upheld these disallowances. The Tribunal directed the AO to verify if the payees disclosed the amounts received and paid taxes thereon, as per the amended provisions of Section 40(a)(ia). Regarding Section 40A(3), the Tribunal found merit in the assessee's claim that no payment exceeding Rs. 20,000/- was made to Gatiman Earth Movers and directed the AO to re-examine the disallowance.5. Addition of Sundry Creditors and Other Liabilities:The AO added Rs. 2,53,31,075/- as bogus sundry creditors and Rs. 50,26,114/- as non-existing other liabilities. The CIT(A) deleted the additions related to Vestas Wind Tech India Pvt. Ltd. and Vestas RRB Pvt. Ltd. but sustained the balance. The Tribunal directed the AO to provide the assessee an opportunity to reconcile the sundry creditors and other liabilities.6. Jurisdictional Validity of the Assessment Order:The assessee challenged the validity of the assessment order, arguing that the AO conducted proceedings at Pune instead of Satara, causing undue harassment. The Tribunal dismissed this ground, stating that the AO had valid jurisdiction and the assessee could have approached higher authorities if there were genuine grievances.7. Treatment of Income from Land Business:The AO added Rs. 11,13,750/- as unaccounted income from land business. The CIT(A) enhanced this to Rs. 96,78,970/-. The Tribunal noted that the assessee claimed the lands were rural agricultural lands and not capital assets under Section 2(14)(iii)(b). The Tribunal restored the issue to the AO to verify the nature of the lands and adjudicate accordingly.Conclusion:The Tribunal partly allowed the appeals for statistical purposes, directing the AO to re-examine several issues, including the reconciliation of contract receipts, sundry creditors, and the applicability of disallowances under Sections 40(a)(ia) and 40A(3). The Tribunal also directed the AO to verify the nature of the lands involved in the land business transactions.